Two major investment rating firms threaten Louisiana with downgrade; state is now officially at the financial end game

“That clanking sound you heard,” says blogger C. B. Forgotston, “was Louisiana’s proverbial fiscal can hitting the end of the road.” And he has been around state government long enough to know the signs.

“Like a kid behaving badly, we’ve been placed on probation,” added State Treasurer John Kennedy.

Both men’s assessments were in response to the double whammy of two investor rating services’—Moody’s and Standard & Poor’s—action to move Louisiana’s credit outlook from stable to negative on Friday and to threaten the more severe action of a downgrade.

“This should be a wake-up call that we need to stop spending more than we take in,” Kennedy said. “We’ve drained our trust funds, we’ve relied on nonrecurring money and we’ve had to cut the budget in the middle of the fiscal year for too many years now. Many have been warning that this day would arrive, and it has.”

The dual action by the two ratings services impacts $2.7 billion in outstanding general obligation debt and $1.25 billion in related debt.

Moody’s warned that continued structural imbalances, steep growth in pension costs, deterioration in financial liquidity and failure to contain costs in the state’s Medicaid system will result in a credit rating downgrade, making it more costly for the state to borrow money.

S & P added a warning that “Should budget adjustments fail to focus on recurring solutions or if the structural gap grows with continued declines in revenue or material reductions in federal program funding to the state, we could lower the rating” even further.

Gov. Bobby immediately attempted to put a positive spin on the bad news (or as Forgotston described it, tried to pour perfume on the manure pile to change the smell but not the content) by saying that the agencies didn’t lower the ratings on the existing outstanding General Obligation bonds.

But what Gov. Bobby did not say, according to Forgotston, was that the rating on those bonds was not lowered because the Louisiana State Constitution gives those bonds first call, even before employee retirement benefits, on all the money in the state treasury. “In other words, if the state goes bankrupt, those bonds will be paid,” he said, adding that future state borrowing will also cost more.

It could also mean that in the event of default, retirees won’t be getting their pension checks, something that should get the gray panthers up in arms.

At this point, we feel it important to point out—just in case anyone still needs reminding—that Gov. Bobby has been traveling all over the country (well, mainly to Iowa and Washington, D.C.) spewing his rhetoric about how he has cut the number of state employees, how Louisiana’s economy is out-performing other states, how new industry is locating to Louisiana, and how little it costs to attend LSU.

Except it’s all part of his big lie—except, of course, the part about hauling state workers out to the curb.

But if he is so hell-bent on claiming and then taking credit for all these wonderful events and trends (of course he never mentions the state’s high poverty rate, poor health care availability, our second lowest median household income, the eighth lowest percentage of citizens with a bachelor’s degree or higher, or our fifth highest violent crime rate), then he must shoulder the blame for the bad news as well.

Any coach will tell you that’s the way the game is played; if you take credit for the wins, you have to take the blame for the losses.

And of course, he never, never does that. Everything out of his mouth is about all the great accomplishments of his administration, and always spouted off in such rapid-fire fashion as to give little chance for argument from dissenters. It’s his style to overwhelm with statistics quoted by rote in his boring staccato delivery.

Well, Bobby, your rhetoric—and for that matter, you as well—are wearing a little thin.

The doubt began creeping in here in Louisiana midway of your first term and has continued to build until now the national media have caught on. Only last week, three or four national stories revealed the pitiful shape you are leaving our state in for your unfortunate successor to attempt to clean up.

Unfortunately, whoever follows you will most likely be a one-term governor because no one can clean up your mess in a single term and the voters are likely to grow weary of whoever is unfortunate enough to follow you and turn him or her out of office after four years in a desperate attempt to find a quick solution that in reality may take decades. You have set this state back that far (Thank you, Gov. Mike Foster for inflicting this plague upon us).

And, Gov. Bobby, you can just mothball your national political ambitions. Being President is a far distant fantasy by now and any prospects of a cabinet position are just as surely disappearing like so much sand through your fingers. You can now only accept that you will go down as one of, if not the most vilified governor in the history of this state. You have succeeded, by comparison, in making Earl Long appear to have been in full control of his mental faculties back in 1959.

And lest anyone think we are giving the legislature a free pass on this situation, think again. With only a handful of exceptions, those of you in the House and Senate have been complicit in this charade of governance. You have aided and abetted this pitiful excuse of a chief executive who, while pandering repeatedly that he had the job he wanted, nevertheless plunged full speed ahead toward his fool’s errand of seeking the Republican presidential nomination. Why, his own family was talking openly of his becoming President—at his first inauguration way back in 2008!

Moody’s and S &P were each quite thorough in laying out the reasoning for their simultaneous actions on Friday.

Moody’s said its action reflects a $1.6 billion structural deficit, continued budget gaps, the state’s large Medicaid caseload, job growth below the national average and significant unfunded pension liabilities. “The negative outlook reflects the state’s growing structural budget imbalance, projected at $1.6 billion for fiscal 2016, or about 18% of the $8.7 billion general fund even after significant budget cuts of recent years,” Moody’s said. “The state has options for reducing the imbalance, including scaling back various tax credit programs, but the overall scale of balancing measures needed may further deplete resources and reduce the state’s liquidity, which has been one of its strengths.”

S & P was no kinder, citing Gov. Bobby’s reliance on non-recurring revenue which it said only served to increase future budgetary pressures. “In our view, the state’s focus on structural solutions to its general fund budget challenges will be a key determinant of its future credit stability.

“We could consider revising the outlook back to stable if revenue trends stabilize and if Louisiana makes material progress in aligning its recurring revenues and expenditures on a timely basis with a focus on recurring solutions. Should budget adjustments fail to focus on recurring solutions or if the structural gap grows with continued declines in revenue or material reductions in federal program funding to the state, we could lower the rating,” S & P said.

Forgotston, in his own unique way, tells us what Moody’s and S & P were really telling us: “Bobby, you and the legislators have made a big ‘number-two’ mess in your fiscal pants and we have no faith in your ability to clean it up. Folks, don’t let the legislators try to fool you; this is very bad news for us taxpayers and the legislators are the reason for it.”

Yes, it’s easy to blame Gov. Bobby because he has in his seven years initiated every Ponzi scheme one could imagine from giving away something like $11 billion in tax incentives (according to one recent story), to giving away the state’s charity hospitals, to robbing the Office of Group Benefits reserve fund, to attempting to rob the state’s retirement system, to refusing federal grants for needed projects, to rejecting Medicaid expansion and thus depriving the state’s indigent population access to decent health care which in turn led directly to the announced closure of the emergency room of a major Baton Rouge hospital. The list goes on.

But, as Gov. Bobby is so fond of saying, at the end of the day, it was the legislature, through the “leadership” of Senate President John Alario, House Speaker Chuck Kleckley and Appropriations Committee Chairman Jim Fannin that allowed him to do it by refusing to grow a collective set and stand up to this vindictive little amateur dictator.

This is an election year and Louisiana voters—particularly state employees, former state employees who have lost their jobs because of Gov. Bobby, teachers, retirees and the state’s working poor would do well to remember what this governor has done to them and which legislators voted to support the administration’s carnage inflicted upon this state.

There are those few in the House and Senate who have spoken up and tried to be the voices of reason but those voices have been drowned out by Gov. Bobby’s spinmeisters.

So when you vote for governor next fall, you would do well to ignore the TV commercials bought by those who want only to continue down this same path of economic destruction and growing income disparity and consider who you believe really has the best interest of the state, and not the special interests, at heart. In other words, think for yourselves instead of letting some ad agency do your thinking for you.

If you don’t get your collective heads out of the sand and in the most emphatic manner you can muster, tell your neighbors, your friends, your family, the clerk at the store where you shop for food and clothing, the cashier at the restaurant where you eat what this governor and this legislature have done to you and to them, then come next fall, you have no one to blame but yourselves.

The time for joking about Gov. Bobby is over. We’re at the end game now.

29 Responses

Tom – your posts are about the only unvarnished reports of the never ending bobby against humanity game (with apologies to the popular game “Cards against Humanity.”) The press office propaganda about the Moody’s downgrade tried to make it sound like a good thing. They can spin it all day long, we can see the blue sky for what it is.

This is one of the very best posts ever. Yes, it is entertaining to see Bobby make a fool out of himself, but below the surface, it is a horror story, starting with the hundreds who are likely to die for lack of Medicaid expansion, according to the Kaiser Family Foundation. No need to go through the litany of horrors. It is indeed time for the legislators to show some courage — I mean, what leverage can Bobby have, since he is almost out of here? But even if Bobby has enough political capital to fight back, it should still not stop the legislators from taking him on and doing the right thing.

Bobby has tried to run the state without sufficient revenue, and as everyone is saying, the game is up.

Bobby may not have technically done anything worthy of criminal conviction (that we know of), but people are in prison for much, much less than the harm he has caused to the public good.

Well said ‘windowpane’ and Tom. Here’s one of the key passages from Tom’s post:
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And lest anyone think we are giving the legislature a free pass on this situation, think again. With only a handful of exceptions, those of you in the House and Senate have been complicit in this charade of governance. You have aided and abetted this pitiful excuse of a chief executive who, while pandering repeatedly that he had the job he wanted, nevertheless plunged full speed ahead toward his fool’s errand of seeking the Republican presidential nomination.
—-

It is an election year folks! All state legislators are up for re-election. If they don’t start IMPEACHMENT proceedings against Governor Jindal for fiscal malfeasance and reverse the theft against us, they will seal what the governor thrives in — being the master of disaster.

I agree, this whole mess was created by the governor and spineless politicians. The Governors motto is “my way or the highway.” Reps and Senators, unless you clean up this mess the people of this state are going to show you the highway.

Among Jindal’s many talking points is that Louisiana has gotten 8 upgrades in its bond ratings during his administration. Now this. How can we reconcile the two?

Well, first we have to question the whole bond rating methodology. You can easily find information about a Justice Department suit against S & P that is about to be settled for more than a billion dollars related to their failure to see through a mortgage and secondary mortgage market that devastated our economy and that anybody buying a house or even reading the daily papers could have figured out. And, you can find many other examples of public and private entities that have gone belly up with good bond ratings.

Now, the rating agencies are finally waking up to something a blind accountant could have seen with regard to the Louisiana’s financing.

I used to argue the point C. B. makes about the constitutional protection of debt service (the bondholders virtually cannot lose) regularly during meetings with these rating agencies. They would justify not giving us upgrades with gripes about our retirement systems funding and things that were truly minor issues compared to the state we have been in for at least the last 6 years. Getting them to change was like turning a very large ship and we had to beg for years to start getting upticks, despite the fact we were doing concrete things to stabilize our finances..

So, the bond rating methodology is obviously flawed and the rating agencies suffer from a great deal of inertia. Therefore, after years of ignoring the structural imbalance that existed even when we were flush with BP money, it would have been difficult for the agencies to actually lower our bond ratings – doing so would have made it appear, as is the case, they had not really been doing their ostensible jobs. That’s also the reason their comments were not more harsh.

There comes a time when everybody reaches that CMA stage. We are there. As Tom says, beware the campaign rhetoric and question everything.

You’re quite welcome, Stephen, and isn’t it ironic that the situation you described so well with the ratings agencies even caused municipal bond insurer’s like Ambac to go bust? They kept being told by those ratings agencies that they’d be dinosaurs if they didn’t expand beyond insuring municipal bonds and into insuring mortgage-backed securities. Ambac and others listened, expanded their coverage to MBSs, and met their demise from doing so. Unbelievably ironic, huh? Again, great post!

Jindal is a sick pathetic joke, and the charade should have been seen before the last election, I have little confidence Louisianans will elect someone with a different mind set next time…..it will be a repeat…..David Vitter…..he will use the usual tired old campaign rhetoric Guns, God, Gays, Abortion rights,Free market, Islam, Obamacare, and so on, he will make us believe how lucky we are to have him taking charge……and if we just elect him, all will be well, and the majority will stay home and NOT VOTE……and the cycle continues………

Robo calls to participate in Vitter’s “Town Hall Meetings” focus on one and only one topic. Immigration . That’s it. I want to scream into the phone saying something such as “Vitter you fool, you’re running for Governor of this state. Our significant problems are NOT immigration related. We have a fiscal crisis brought on by a Governor and Legislature following the dictates and philosophy of YOUR party. Or as Bobby in a moment of lucidity called it, “The Stupid Party.” So tells us, what are you planning to advocate to help rid us of the fiscal disaster that we have become?”

There is a dark horse running in this race! Equivalent to Governor Murphy Foster, this horse will run ahead of the race and onto victory! ” Take this hint: While the red bird sings, the blue bird flies to victory in it’s final redemption”!

Well, it doesn’t take a genius to figure out you’re referencing Rep. Edwards. Unless Dardenne garners momentum (his stand on common core, unfortunately, will likely cap his support level), Edwards can likely make the runoff. Unfortunately, thereafter, he faces a fate almost certain to be a carbon copy of a much more prominent Edwards in a very recent election.

A gentleman I know recently made a friendly wager with Jim Engster. The bet is a steak dinner, but Engster gets 2-1 odds (so he gets two steak dinners if he wins). The bet? Vitter wins the 2015 Governor’s race. Engster wins the bet if ANYBODY but Vitter wins. The guy who took Vitter (but nevertheless despises him) is typically spot-on regarding Louisiana politics, so I would have to also wager folk can get ready for Vitter to assume control in 11 months.

I spoke with Mr. Edwards several times over the past month and he is the only one who in the Legislature that is standing up for the state employees against the powerful machine. I am a registered republican but will vote for him even though he is a Democrat. He seems to be the only one with any guts or convictions. Some people say ” he can’t win”. I remember the same words said about Mr. Obama. David Vitter will finish off the few state workers that are left when Jindal leaves office. Wake up people.

Here we are at the endgame in Bobby’s legacy of shame. Thanks for the reminder that Bobby couldn’t have landed us in this dire situation without a compliant legislature, where the few voices of sanity were shouted down.

“well his rants about the president and Washington were the loudest in the room.”
I would like to give kudos to the author of the cartoon. I’ve always found that the one yelling the loudest is the one with the most to hide.

“So when you vote for governor next fall, you would do well to ignore the TV commercials bought by those who want only to continue down this same path of economic destruction and growing income disparity and consider who you believe really has the best interest of the state, and not the special interests, at heart. In other words, think for yourselves instead of letting some ad agency do your thinking for you.”
So nice to think that this might happen, but most of the people of Louisiana are too ill-informed to think for themselves.
I will say say that I do have Republican friends who will not vote for Vitter over the prostitution bit. Jim Engster is probably right, though.

Let’s imagine for a moment House Speaker Kleckley starts the impeachment process before the legislative session. Does anyone know how long that would take to carry out so our Lieutanant Governor can toss out all bills which don’t address serious budget issues?
We do not want to see Any Ridiculous Bills submitted such as last year’s genius one for the State Book of Louisiana to be The Bible. No time for any more games, no room for all the lobbyists!!! But Jindal has not wanted Louisiana citizens at our State Capitol during the legislative session. I believe the only ones who really need to be filling the halls and the Capitol steps are the people of Louisiana. It’s time for our, “Prayer Rally,” Jindal uninvited!!! This will take a lot of organized work but all of us can coordinate to get our state back. Forget emailing legislators, they are tired of the negative and that’s all they get. They rarely answer their calls.
So I am asking for all of you very bright people to start the ideas flowing. Let’s meet up shake hands and throw Tom a party!!!! But We Have Work to do!!
Tom the people of this state are forever indebted to your commitment to investigate and report facts not twisted news reports we were getting from our
local newspapers. Tom, Using the words of my daughter when she gives the greatest compliment, “You Rock!!”

I guess John Kennedy relishes this endorsement – I find it somewhat disappointing. Same for another of Jindal’s ostensible nemeses, Chas Roemer. I thought Walter Lee resigned in disgrace in December 2014 – Is he running again? How about frequent administration critic John Schroder and some of his fellow fiscal hawks? Very interesting list of endorsements. At least my representative isn’t on the list so I can feel good about voting for him.

@RobertBurns, in the words of Abe Lincoln’s famous Gettysburg address with minor revisions “the people of this state will little note nor long remember what they said here, but they will never forget what they did here”! Remember when the majority of Democrats jumped the fence to become Republicans so they could be elected to prominent offices of this state! I predict these same Republicans is fed up with the status quo! If my calculations is correct every Republican legislator who fell in bed with Jindal has unhappy constituents! i.e. Educators, students, parents, blue collar workers, doctors, nurses, lawyers, the working middle class, etc. Constituents who will jump that same fence to vote Democrat! And if my calculations is wrong, then I shall rely on my gut feeling! It’s never wrong!

FYI
I found your response to lademocratgirl2015 to be a little condescending
She is obviously very passionate about her beliefs and really you agree on the issues, as do I, so just be a little kinder in your remarks
You were right about the subject verb agreement issue but could have used more tact in pointing it out
Just an opinion
I usually agree with the subject matter of your posts

Very imnportant words from Tom, that bear repeating with emphasis: “AND LEST ANYONE THINK WE ARE GIVING THE LEGISLATURE A FREE PASS ON THIS SITUATION, THINK AGAIN. WITH ONLY A HANDFUL OF EXCEPTIONS, THOSE OF YOU IN THE HOUSE AND SENATE HAVE BEEN COMPLICIT IN THIS CHARADE OF GOVERNANCE. YOU HAVE AIDED AND ABETTED THIS PITIFUL EXCUSE OF A CHIEF EXECUTIVE WHO, WHILE PANDERING REPEATELY THAT HE HAD THE JOB HE WANTED, NEVERTHELESS PLUNGED FULL SPEED AHEAD TOWARD HIS FOOL’S ERRAND OF SEEKING THE REPUBLICAN PRESIDENTIAL NONMINATION.”

The elections are this Fall. We can remove all of those who have been “complicit” and who have “aided and abetted” this Governor – the ENABLERS, who are running for reelection or another position.

TOM: Please list every week who these “complicit” ENABLERS are, so that your readers can be sure to know who they are and to never vote for them.

As a recent state retiree with 31 years of service, I have long yearned for this point in my life when I would be free from the likes of piyush and the other elected,spineless creatures. It saddens me to realize that my “security” or pension could be taken away. I am one of the lucky ones. I am able to continue working, in the private sector, hopefully for many years. Thousands are not so lucky.

Isn’t it ironic that be, am, is, are, was, were, been, has, have, and had are all helping verbs? It is even more ironic that in politics, there are very few subject-verb agreements in terms of helping people! Thanks for the English lesson Mr. Burns!

You’re welcome, Dem Girl 2015, and I do admire your passion, and I know we all share the same passion in hoping that the next four years will entail a marked improvement from our state government elected officials versus what we’ve endured the last four years. I think that sentiment is shared by Republicans, Democrats, and even the whacky Libertarians like me who can almost never claim that a member of their party won a race for public office.😊

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